Adware firm quietly settles suits

Claria, formerly known as Gator, ended a multidistrict litigation case, or combined lawsuit, with Wells Fargo and Quicken Loans on 7 August, according to the plaintiffs' attorney. In recent months, it also has quietly settled with UPS, Hertz, L.L. Bean, Tiger Direct and Six Continents, a Claria representative confirmed.

Terms of the settlements were not disclosed.

"These (cases) have been settled to the satisfaction of all parties," said Claria spokesman Scott Eagle, adding that with some plaintiffs, a business relationship was formed. "Claria will continue to protect (its) business model."

Claria, which recently suspended plans to go public, still faces a lawsuit from retail florist Teleflora, which filed its case in April 2004. Claria has appealed the court to have the case considered individually as opposed to part of the consolidated case.

Though the settlements close another chapter in a long-running dispute over the practices of adware companies such as Claria, they also leave questions unresolved about the legality of their services.

Claria's advertising software piggybacks on free downloads such as peer-to-peer application Kazaa, supporting them by delivering targeted ads to users. Once downloaded, Claria's application serves pop-up and pop-under ads to people while they're surfing the Web or when they visit specific sites. Ads can be keyed to sites so that a pitch for low mortgage rates, for example, can appear when a surfer visits a rival financial company's site.

Wells Fargo, which filed its lawsuit in the spring of 2003, along with other plaintiffs, has charged that Claria violates copyrights and trademarks by allowing rivals' ads to appear atop or under their sites. Claria fielded as many as 13 related cases, so in early 2002, the company filed to have the Judicial Panel on Multidistrict Litigation consolidate the cases.

The panel, a court based in Washington, D.C., was originally set up to handle special disaster-related cases. But it has since been used to handle intellectual property cases such as the ones surrounding Napster.

Adware critics have yet to receive a final decision on the legality of adware. In February 2003, Claria settled a high-profile case brought by The Washington Post, The New York Times, Dow Jones and other media companies. Terms of that deal were quiet too, but Claria has since stopped delivering pop-ups to those publishers' sites.

Pending lawsuits could still clear up the issue. Claria rival WhenU.com has a case pending filed by Wells Fargo and Quicken Loans on the same matter. Terence Ross, partner at Gibson, Dunn & Crutcher, expects it to go to trial in 2005. WhenU has filed an appeal in a New York district court in a case brought by 1-800-Contacts.com, which had won an injunction against the company's pop-up ads.

Google, which allows advertisers to bid for trademarked names to appear in related search results, could also figure largely in the debate. It's currently involved in two cases in the United States with advertisers that complain its practices violate their trademarks. The No. 1 search provider is fielding lawsuits from American Blind and Wallpaper as well as Geico.

Attorneys liken the recent settlements to a legal thriller that's "to be continued".

"It avoids any definitive resolution about the legality of adware, and that may be to the benefit of adware providers such as Gator in that there will be an uncertainty in the marketplace," said Ross, who represented Wells Fargo and Quicken Loans in the case.